«The reuse of salvaged parts from vehicles, deemed to be at the end of their life, is viewed as an opportunity by insurers and crash repair firms to ...»

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Crash Repair in the UK: Reusing Salvaged Parts in Car Repair

Centres

The reuse of salvaged parts from vehicles, deemed to be at the end of their life, is viewed

as an opportunity by insurers and crash repair firms to reduce rectification costs and

improve service to policy holders. This research investigates the opportunities and

challenges that confront an important but under researched part of the automotive supply

chain in establishing a reverse logistics flow of salvaged parts. The aim of this article is to explore why the development of a reverse logistics system for the reuse of salvaged parts has not been successful in the UK yet flourishes in North America and Europe.

Through answering this question the paper seeks to provide a framework for managing the development of a partial closed-loop reverse logistics system for salvaged parts.

Economic and ecological benefits are identified as potential outcomes. The implications for practice and further research are discussed.

1. Introduction Increased legislation and concerns with the environmental impact of waste has developed a drive by organisations to reduce, repair and recycle product at the end of their life. Companies are recognising that used products can represent a valuable resource in servicing customers and meeting legislative requirements (Fleischmann et al, 2003). Realising the value-add inherent in used products requires the establishment and operation of a reverse logistics system (Knemeyer et al, 2002). Simple explanations of reverse logistics suggest that the logistical flow follows the original flow from producer to user but in reverse order (Zikmund and Stanton 1971). Most supply chains however have been designed for unidirectional flow with consideration for a structure that could support reverse logistics or redistribution of used parts being overlooked (Bernon and Cullen 2007).

The reverse flow of salvaged parts to be reused in the repair of cars is a common occurrence in North America. Several large distributions firms have evolved to manage the recovery and reuse of salvaged parts from end-of-life vehicles (ELV’s), salvage parts for reuse being defined as components that can be reused without any need for change (Tang and Naim 2004). In Europe, the EU has issued a statement encouraging reuse of salvaged parts for the repair of cars (European Commission, 2009). There are several countries in Europe including Germany and the Netherlands which actively use salvaged parts in the repair of cars. The UK is facing similar pressure to other European countries in terms of growing regulation and landfill reduction targets. However its crash repair sector has been unable to establish a reverse logistics network to reuse salvaged parts.

The purpose of this paperis to explore the reasons why the UK crash repair sector struggles to establish a reverse logistics system whilst other European and North American countries routinely reuse salvaged parts. Initially the paper compares and contrasts the differences between countries reusing salvaged parts in terms of market and governance structures to provide an insight into their impact on decision making and subsequent reuse of parts. The paper then reviews the current literature on reverse logistics and the reuse of salvaged parts comparing, contrasting and augmenting it with the analysis of findings from the research project. This review is followed by a discussion of a potential framework for the establishment of a partial closed-loop reverse logistics system. The paper concludes with suggestions for future research.

2. Market Structures in the Crash Repair Sector

The crash repair sector in the UK has different market characteristics compared to other EU and North American countries. Within the UK insurance market companies operate a risk reduction and customer retention strategy for car repairs. When a vehicle is involved in an accident the insurer will strive to repair the car at a nominated supplier. The nominated accident repair centre operates to an agreed industry standard using approved equipment and repair methods as specified in PAS125 Kitemark (British Standards Institute, 2007). No other country has evolved an accredited accident repair standard that stipulates how a crashed car can be returned to a roadworthy condition. The standard also specifies what tools, materials and methods should be used to execute the transaction by industry assessed and trained technicians. To achieve accreditation, repair centres have had to invest in equipment and people to improve their capability to support the PAS125 Kitemark standard. Operating with an industry standard reduces the risk of poor vehicle repair for the insurer and policy holder. The exchange between the insurer and the crash repair centre is one of interdependency and aligns with a relational governance structure.

In other EU countries insurers reduce their risk by issuing the policy holder with a cheque allowing the customer to action their own repair therefore shifting responsibility to the car owner. This approach minimizes insurer risk as repair centres in these markets operate independently (unless they are dealerships which were outside the scope of this study) without any recognized standards of repair to codify and support the transaction. EU insurers take a market governance approach to managing the repair process. Parts to be used in the repair are decided by the policy holder. Repairing the vehicle, as opposed to presenting the policy holder with a cheque, is the modus operandi of UK insurers and supports the continued relationship with the customer. Issuing of a cheque does not guarantee the customer will purchase a replacement car or continue to insure with the original insurance firm. The majority of car ownership in the UK is by individuals who are exposed to price comparison website marketing. Payment of a cheque leads, in general, to a lost customer for the insurer.

In North America over 60% of cars are owned by lease companies who focus on minimizing lost time off the road for clients. Insurance is predominately paid through lease charges therefore the insurance company-crash repair centre relationship is different from the EU. Time and cost is the focus for lease companies and insurers. Crash repair centres are driven for quick turnaround and lowest cost under a market governance structure. Reused parts are viewed as a lower cost option for lease firms when repairing cars. Car repairs in North America use more than 40% of parts reclaimed from ELV’s.

The various market and governance structures used in Western countries are shown in Table 1. The discussion on the impact of the unique UK governance and market structure on the forward flow of parts and the development of the reverse logistics system will be elaborated in the findings section of the paper.

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3. Reverse logistics and the reuse of salvaged parts Authorised treatment facilities have been in existence for many years and some larger facilities have recently become regulated salvage agents for the dismantling of ELV’s in the UK. With the increase of ELV legislation several dismantler firms have upgraded their capabilities by investing in equipment and staff in order to attain a license to operate. Historically dismantler firms had been characterized by limited capital investment and poor technical qualifications with the quality of work performed not graded to any industry standards (Renato et al, 2002). The licensed salvage companies are responsible for reporting to BERR (Department for Business Enterprise and Regulatory Reform) on recovering metals from shredding activities, oils and fluids, tyres, batteries, recycling of non-metallic materials and non-metallic spare parts sold. The reverse logistic flow of salvaged parts, in this traditional reverse logistics system, is informal with few controls in terms of quality, quantity and timing. Lambert and Stock (1981) defined reverse logistics as “going the wrong way on a one-way street because the great majority of product shipments flow in one direction”. The crash repair sector has historically had a “one-way” approach to ELV’s and their component parts. Once the car is deemed to have attained ELV status the next stage in the supply chain is the dismantler (to remove the oils, tyres and mechanical items for remanufacturing) followed by crushing and shipment to landfill.

The ELV supply chain was designed for unidirectional flow.

Limited evidence exists of manufacturers moving cars back from the vehicle owner to the plant in Europe for salvage operations (Gerrard and Kandlikar 2007).

Currently the forward distribution networks of vehicle manufacturers do not engage with the reverse logistics operation of the supply chain for reused parts to create a closed-loop. Fleischmann et al (2003) define closed-loop systems as being an “ensemble of interrelated inbound and outbound flows”. The operation of a closedloop system could be of major interest to vehicle manufacturer parts suppliers as crash repair centres spare parts sales are a significant part of their profits (Seitz and Peattie 2004). Fleischmann et al (1997) noted that reuse often leads to closed-loop systems where the parts are returned to the original producer. Evidence in automotive sector research would appear to question if parts are being reused and consequently questions the development of a closed-loop system for the sector. Kumar and Yamaoka (2007) researched the Toyota reverse logistics system and found that 80by weight of the car is recycled. Doors, bonnets and door panels are recycled back to metals but, not reused as parts for repairs or spares. This contrasts with the desire of insurance firms to use these major car components in the UK reverse logistics system.

Fleischmann et al (1997) when investigating reverse distribution networks identified key aspects that should be considered when planning the establishment of an efficient and effective reverse logistics operation. Two of these aspects relate to the identification of the actors in the reverse distribution network and the relationship between the forward and reverse supply chain. Actors in the UK crash repair supply chain includes policy holders (vehicle owners), insurers, crash repair centres, salvage agents, logistics providers, dismantlers, shredders, Original Equipment (OE) parts suppliers and specialist service providers. The actors within this supply chain do not exist in isolation but have to interact with external influences. External regulating and competitive factors can impact on the establishment of reverse logistics (Carter and Ellram 1998). Within the crash repair sector regulation exists in the form of industry standards, government and European legislation. Competitive factors include demands from buyers who purchase recycled materials such as metal and plastics and alternative parts suppliers.

The quality requirement of parts, to be reused, depends upon the process that will be employed (Thierry et al 1995). It is important that the quality requirements have to be supported by the reverse logistics operation that provides redistribution of reused product. Quality was identified by Ravi and Shankar (2005) as an important issue in establishing a reverse flow of parts in the Indian automobile industry, as well as a lack of efficient information systems, resistance to change for reverse logistics activities, reluctance of dealers, distributors and retailers to become involved.

External dimensions included the factors highlighted by Carter and Ellram (1998) as well as the input sources of ELC and the output stage of the reverse logistics operation in terms of purchases of recycled materials and refurbished computers.

Internally they identified three stages including the operational factors of inbound processing (separation of items for recycling or reuse), value-add (repair of ELC’s) and outbound processing (recycling or refurbishment). The Knemeyer et al (2002) model provides a useful framework for researching reverse logistics. However within the crash repair sector there are additional factors that need to be considered including; the acceptability of reused parts in the repair process to policy holders, the role of salvage agents/brokers in deciding the fate of the ELV and the alternative, competing, supply of parts to the crash repair centre from existing spare parts manufacturers. The methodology employed in the research is explained in the next section.

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